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Private firms in China have
l imi t ed a c c e s s t o c red i t
markets, with the central
government maintaining
tight controls over interest
rates and credit availability.
These regulations have been
considered an important
source of inefficiency because
they tend to lead to capital
misallocation. Various reform
plans that aim at liberalizing
interest-rate controls and
promote financial deepening
have been proposed. It is
important to understand the
effectiveness of and potential tradeoffs under such liberalization policies
for improving capital allocation and aggregate productivity.
Pengfei Wang,
Associate Professor of Economics at HKUST, presented
his research on interest-rate liberalization in China, and its overall
effect on capital allocation. To this end, Prof Wang constructed a two-
sector model burdened by financial frictions. The key assumptions in
his model are: 1) the relatively well-documented fact that China’s state-
owned enterprises (SOEs) have lower productivity than privately-owned
enterprises (POEs), despite having easier access to credit; 2) China’s
interest rates are regulated by the central government, giving rise to
At this distinguished lecture organized
by the HKUST Jockey Club Institute
for Advanced Study and cosponsored
by HKUST IEMS,
Prof Sir Partha
Dasgupta,
Professor of Economics
at the University of Cambridge,
elucidated his view that economic
indicators such as GDP growth
neither take into account crucial
measures of a nation’s present
well-being, nor include sufficient
consideration for production and
Ma rg a r e t Ma u r e r- F a z i o ,
Professor of Applied Economics
at Bates Colleges and Research
Fellow at the Institute for the
Study of Labor (IZA), reported
her results from three large
scale field experiments that
investigated how Chinese firms
responded to job applications
received from fictitious applicants
whose resume characteristics
were purposefully crafted to
vary only in terms of the specific
characteristics being considered.
In the first study Prof. Maurer-
Fazio and her team focused on
ethnicity, as denoted by means of names that are typically
Han Chinese and distinctively Mongolian, Tibetan, and Uighur.
To do so, she and her research team picked a handful of the
best of thousands of real candidate resumes from China’s
major job boards, and replaced the names on the resumes
with fictitious names with extremely obvious ethnic / non-
ethnic surnames and given names. Prof. Maurer-Fazio and
her team found significant differences in the callback rates
by ethnicity and that these differences varied systematically
across ethnic groups. Not all firms discriminated, with
approximately half treating all candidates equally. State-owned
firms were significantly less likely than privately‐owned firms to
discriminate against minorities.
WEALTH ANDWELL-BEING
IAS Distinguished Lecture, co-sponsored by HKUST IEMS (2015.10.20)
WHEN DO CHINESE FIRMS ADVERTISING ON INTERNET JOB BOARDS DISCRIMINATE
IN THEIR HIRING PRACTICES?
HKUST IEMS Academic Seminar (2015.10.22)
Some of these questions are already answered by well-established
indicators like GDP per capita, inequality and poverty measures,
the human development index, and others. However, there are
many times where these simple indicators do not suffice because
positive and negative externalities are not taken into account. For
example, Sir Partha noted that good health is both a means as
well as an end. In this vein, governments can formulate policies to
improve health care in general, which will ultimately allow citizens
to produce more.
Like most economists, Sir Partha believes that physical capital and
human capital contribute to productivity. But productivity measures,
as currently constructed, ignore the capital inherent to the land
itself: natural capital. Natural capital – just like physical and human
capital – is a depreciable asset, offering positive externalities and
subject to negative externalities, as rapidly accelerating climate
change reminds us. Just like health, natural capital is both a means
and an end, affecting and affected by physical capital and human
capital productivity.
Sir Partha admitted that his theory raises more questions than
answers. The most common criticism is that, like notions of well-
being, natural capital is hard to define and measure. Sir Partha
counters that just because these concepts are difficult or even
impossible to define does not mean they should be ignored. There
was a time when extraction costs for fish, minerals, wood, and
a myriad other natural resources were high enough to prohibit
their over-extraction and depreciation. In contrast, technological
advances in recent decades have made it possible to over-extract or
even deplete natural resources almost instantly. How these realities
impact productivity and well-being in the near and far future is
difficult to define, but nonetheless must be considered.
Video recording available at
The second study explored how gender and facial attractiveness
affected job candidates’ chances of obtaining interviews. It
examined how discrimination based on these attributes varied
over occupation, location, and firms’ ownership type and size.
Prof. Maurer-Fazio picked a stock photo of a typical job-seeking
Chinese male and female youth, and subtly altered the photos
to result in 2 photos for each youth, one deemed significantly
more attractive and one significantly more unattractive. She and
her team then attached these photos to identical resumes and
forwarded them to hundreds of Chinese companies in a variety
of industries and sectors. Prof. Maurer-Fazio found sizable
differences in the interview callback rates of attractive and
unattractive job candidates. Job candidates with unattractive
faces needed to put in substantially more applications than their
attractive counterparts to obtain the same number of interview
callbacks.
The third study focused on women’s marital status, their
current employment status, and whether these factors had
any effect on employer call-back rates. To study the question,
Prof. Maurer-Fazio took hundreds resumes that were otherwise
identical except for marital and employment status, and
sent them to a range of companies throughout China. The
experiement showed no evidence of discrimination based
on either unemployment status or marital status in the hiring
practices of the firms who advertised their job openings
on China’s main Internet job boards. There was, however,
clear evidence that HR managers were carefully reading
resumes and making distinctions between the desirable and
undesirable characteristics of applicants.
Find out more about the event at
Amy Dalton,
HKUST Associate Professor of Marketing and IEMS
Faculty Associate, discussed the growing issue of counterfeiting
in both developed and emerging economies, with counterfeits
posing major challenges for businesses and governments alike.
To better grasp the scale of the problem, Prof Dalton referred
to some of the most recent statistics, one of which was that
counterfeits were estimated to cost U.S. businesses upwards of US
$300 billion in annual revenue and an unmeasurable quantity in
brand uniqueness in 2013. In 2014, governments seized over US
$1.22 billion worth of counterfeit and other goods infringing on
intellectual property rights. Moreover, the market for counterfeits
has grown by more than 10,000% in the past two decades and
continues to expand.
This growth in the counterfeiting market is partly attributable
to consumer demand. Previous research indicates that many
consumers knowingly purchase and use counterfeit products
primarily in an attempt to signal social status to others. Prof
Dalton’s research is novel in that it explores the little-known realm
of the post-purchase experience, i.e. the experience of using
counterfeit goods and their downstream consequences.
Prof Dalton focused on three key questions in delving into the
post-purchase experience of counterfeit goods, namely: 1) how
consumers felt while using counterfeit products; 2) how these
feelings vary across individuals and situations; and 3) the effect
these feelings have on the attractiveness of both counterfeit and
genuine brand goods. To answer these questions, Prof Dalton
conducted five separate single-factor, between-subject product
evaluation surveys administered to students and staff members at
HKUST. To gain further insights on how to design more effective
anti-counterfeit good advertisements, she also conducted a
sixth study using a Google Image search of the keyword “anti-
EFFECTS OF USING COUNTERFEIT PRODUCTS ON CONSUMER FEELINGS AND
PURCHASE INTENTIONS
HKUST IEMS Academic Seminar (2015.11.26)
counterfeit campaigns”,
coding the content of the
first 200 campaign ads into
general categories.
Prof Dalton found that
the key factor driving
consumers to purchase
counterfeits—the desire to
signal status to others—
related to the mixed feelings
consumers experience
when they use counterfeits.
Specifically, consumers who
use counterfeits to signal
social status experience
positive emotions related to the brand’s potential signaling value,
while also experiencing negative emotions related to the risk of
social judgment should their ploy be discovered. She also found
that mixed feelings are more likely when counterfeits are used in
public settings, and thus are visible to others, compared to private
settings, where the counterfeit is less likely to be observed.
Importantly, consumers tend to be averse to experiencing mixed
feelings and thus seek to avoid situations that give rise to them.
For this reason, mixed feelings lower consumers’ willingness to
pay for counterfeits and suppress intentions to purchase other
counterfeits in the future. Mixed feelings also increase the appeal
of genuine products, as these are not associated to feeling mixed.
These results suggest that the use of counterfeit products can serve
as a stepping stone for purchasing genuine brand goods.
Find out more about the event at
INTEREST RATE LIBERALIZATION AND CAPITAL ALLOCATION
HKUST IEMS Academic Seminar (2015.11.12)
a wedge between the loan rate and the deposit rate; 3) private firms
both face idiosyncratic productivity shocks, and maximize profit subject
to borrowing constraints; and 4) SOEs maximize a weighted average
of profit and revenue, with the latter capturing an agency problem
specific to SOEs.
Prof Wang’s model suggests that, although interest rate liberalization
improves within-sector allocation, it worsens cross-sector allocation of
capital. In particular, when interest-rate liberalization causes the loan
rate to drop, capital flows from private firms to SOEs. This, despite
lower SOE productivity relative to POEs. This distortion arises because
SOEs have a strong incentive to expand capacity to achieve revenue
goals, an incentive that is otherwise absent in most POEs. Additionally,
SOEs have much easier access to credit compared to POEs.
Concluding from his analysis, Prof Wang stated that the opposing
effects of the within-sector productivity improvement and the cross-
sector deterioration make the net effects of interest-rate liberalization
ambiguous. As for China pursuing complete interest-rate liberalization,
Prof Wang’s research indicates that a permanent decline in aggregate
total factor productivity would ensue were China to completely
liberalize its interest-rate policy. Prof Wang instead recommends that
China’s economic reform policy would be more effective if it were to
address SOE incentives and credit access in general, both of which are
thought to be the direct causes of the country’s economy and market
distortions.
Find out more about the event at
consumption externalities which may affect a nation’s future well-being.
Sir Partha began the talk by giving a short account of the evolution
of GDP-like measures which began to surface on a wide scale
starting in the 1930s. According to Sir Partha, governments
wanted a way to investigate and promote their country’s economic
activities, and found that detailed country-wide statistics were the
best available option. As such measures proliferated, it became
more difficult to trust such numbers because statistical estimation
methods grew more sophisticated and more esoteric. As such,
Sir Partha doubts that such measures will ever be comprehensive
or accurate enough to be relied upon to confidently make wide-
ranging decisions affecting a nation’s overall well-being.
While Sir Partha primarily discussed the issue of assessing the
state and growth of national economies, he surmised that
the problem extends globally, nationally, and even at the
family level. Sir Partha listed six questions economic measures
should be able to answer about an economy:1) how is the
economy doing; 2) how has it been doing in recent years; 3)
what should be our forecast of the economy if policies evolve
over time in the way we expect them to evolve; 4) how is the
economy likely to perform under alternative policies; 5) which policies
should we support; and 6) what would be an ideal set of policies.
